KBC played down fears that it could abandon the Irish market yesterday after the bank said it will take a massive loss in its fourth quarter from non-performing Irish loans.

Doubts about the Belgian bank's commitment to Ireland emerged after it surprised analysts with the news that its Irish subsidiary will be hit with a €775m loss from non-performing loans for the September-December period.

This will bring the total cost of its Irish lending activities to around €1bn this year. It had previously predicted that those loans would cost just €300 to €400m for 2013.

"We are absolutely still committed to Ireland and we still plan to expand," chief executive John Reynolds told the Irish Independent, when asked if KBC might follow in the footsteps of Rabobank and Lloyds by leaving Ireland.

"Our parent company is very profitable and wants to deal with any problems in the Irish division today rather than next year, so that's what we're doing – dealing with those losses now, taking the hit this quarter," added Mr Reynolds, who is leaving the bank. The unexpectedly large loss was blamed on Ireland's slow economic recovery.

"Even though some parts of the economy are recovering – like the Dublin property market – that recovery is not evenly spread. SME customers in particular are still struggling, with business models still changing."

New financial reporting standards from the European Banking Authority were also blamed. The new standards forced KBC to reclassify about €2.4bn of restructured loans as more likely to default. It has €15.5bn on loan to Irish borrowers.

KBC Ireland also announced financial results for the July to September period yesterday, revealing that losses had narrowed to €80m from €129m in the same quarter a year before – though this improving trend will disappear in the next quarter, once the €775m impairment charge is registered.

But the bank expects an impairment of between €150 and €200m in 2014 and between €50m and €100m in 2015. It expects to be profitable in 2016.

It employs over 800 people and has offices in Dublin, Cork, Limerick and Galway.

Mr Reynolds added that it is looking at new offices for another round of expansion. "We see a window of opportunity in Ireland – from 2014 on there's going to be real demand for a modern retail bank," he said.

The results also showed that the Irish subsidiary's Belgian parent is faring much better.

It reported a net profit of €272m – though this is down by almost half from a year earlier.

The group, which received €7bn of Belgian state aid during the financial crisis, said that positive results in Slovakia, Hungary and Bulgaria managed to wipe out the negative results in Ireland.